The Employee Retirement Income Security Act of 1974 (“ERISA”) governs various types of employee welfare benefit plans. One purpose of the act was to create an incentive for employers to offer health care benefits to their employees. Another purpose of the enactment of ERISA was to create an exclusive federal enclave for the regulation of employer sponsored benefit plans. The ERISA statute itself provides a business tax deduction benefit for the employer for the amount of money that is contributed toward an employer sponsored medical benefit or health care plan. The statute further provides and creates a comprehensive federal plan and format for avoiding multiple jurisdictional disputes over benefits which employees are entitled to under these health care plans and to employer's obligations under the health care plans.
An ERISA based plan for a self funded or a self insured employer is generally carried out in the following manner. A Third Party Administrator (TPA) is generally hired by an employer to help create an employer sponsored medical benefit plan. A employer sponsored medical benefit plan is any kind of funded program that is established or maintained by an employer for the purpose of providing, through the purchase of insurance or otherwise, benefits that cover medical charges, surgical charges, hospital care, and professional doctor visits. The ERISA based medical benefit plans discussed herein are directed to self insured or self funded medical benefit plans, which means that the employer has not opted for an insured plan provided by a health care insurance company (i.e. Aetna, Blue Cross-Blue Shield, United Health, etc). Furthermore, in reality, the meaning of a self-insured or self-funded medical benefit plan is that the employer is the risk bearing entity that pays a certain predetermined and defined portion of their employee's healthcare claims from the general assets of the company. This risk-bearing may be limited by the self-insured or self-funded plan purchasing stop-loss insurance and/or re-insurance for excessive payments.
A self insured employer, although ultimately responsible for payment, may protect itself from catastrophic monetary losses by hiring a stop-loss carrier or a re-insurer that issues an indemnity insurance policy to the employer that indemnifies the employer against claims over a predetermined monetary threshold point such as, for example, $30,000 per employee or payout of $1,000,000 per year for the entire group covered by the self-insured employer. Thus, the self insured employer assumes the risk of funding the first $30,000 of claims for each of its employees for a given year or time period. The employer is taking the risk, so to speak, that very few of its employees will require more than $30,000 worth of medical benefits and is limiting its risk by having any payout for an individual that exceeds $30,000 be covered by the stop-loss or a re-insurance carrier. Furthermore, the employer is hoping, in this example, that the total medical claims of the employees of the company will not exceed $1,000,000. Of course, if the total medical claims exceed the $1,000,000 number then the stop-loss or re-insurance carrier will cover the excess of any payouts after the first $1,000,000 has been paid by the employer.
Since ERISA was enacted in 1974, there have been various methods and medical benefit plan types for a self insured employer to use to pay for employee health care benefits and to contain the ever increasing costs and expenses associated with health care services. The various previous medical benefit plans have allowed an employer to continue to afford and offer health care benefits to their employees. but the affordability is now becoming questionable.
In the 1980s health maintenance organizations (HMO) were used in an attempt to contain the costs of health care, but these organizations did not always prove to be an effective means for providing, delivering, or paying for medical services. Preferred Provider Organization (PPO) networks came in to existence. A PPO enters into network contracts with medical service providers who agree to provide medical services to employers who agreed to be participate with the PPO network. The employer or a self insured ERISA plan may enter into a contract with the PPO network plan, or the contract to access the PPO network may be entered into by a third party administrator (TPA) who administers the plan on behalf of the sponsoring employer.
Large non-self-insured corporations also enter into agreements with PPO network plans. A PPO network system provides a large volume of patients to the medical service providers in the PPO network and in return or exchange the medical service provider gives a negotiated or predetermined discount on the billed medical charges to the employer.
Over time, since the inception of the PPO network system business model, medical service providers have hired specialists and consultants to help and advise them on techniques for increasing their overall collections. As a result, PPOs and Medical Service Provider members thereof have inflated their charges for medical services to such an extent that they are no longer providing a “real” discount for many medical services that are provided to the employees of self-insured employers. Some refer to what has happened in the PPO arena as a cost shifting mechanism by which the medical service providers are purportedly making up for service fees that are not collected from Medicare and from indigent patients (i.e., the lost costs are being shifted to commercial payers in order to make up for uncollected service fees and to increase profits). This shifting of costs is having a tremendous financial impact on the ability of commercial payers and employers. The commercial payer's and employer's ability to offer medical benefits under a PPO network system plan is being strained because the charges that are being passed onto the commercial payers and employers do not have a rational relationship with the actual cost or a reasonable profit margin for delivery of the medical services that are being paid per the PPO network discount. As such, PPO networks are no longer an asset to an employer and have turned into a detriment because the cost of the medical services under the PPO network plans has escalated so high that in many instances there is not a real discount for the medical services provided. Furthermore, PPO network medical service providers are using their PPO network contracts to circumvent ERISA by claiming that they have a separate legal right to recover unpaid portions of the excessive charges that they are charging for services.
Now that PPO medical service providers are using their PPO contracts to circumvent ERISA and claim that they have a separate legal right to recover unpaid charges (the excessive charges) being charged for services under certain language in a PPO network service contract, the self insured employers are encountering new problems that were not present when the PPO networks were first established. For example, now the self insured employers and/or employees of the self insured insurers are being asked to pay the difference between the amount that a medical benefit plan is willing to pay via the PPO and what the medical service provider is asking for as payment. This is having less impact on large PPO network service providers like Blue Cross-Blue Shield, Aetna, or United Health because of the contract terms they are able to demand given their strong bargaining position due to the number of patients that they can channel to selected medical service providers.
This problem with medical service providers is especially impacting self insured employers who do not have the negotiation power or leverage of the large PPO network service providers because the self insured employer can only channel a limited number of patients to the medical service providers.
To date, the medical service providers continue to be very unreasonable with respect to cost shifting. In various circumstances, medical service providers have admitted to using various cost shifting tactics to make up for the lost revenue from Medicare and indigent patients. For example, the cost of an implant used in an implant procedure may be marked up 800%, and four implant devices may be billed for a procedure that only requires two of the four, but the patient is charged for all four. Patients may be billed via an inappropriate bundling of charges, such as paying for an entire box of syringes when only one syringe was used. Patients may also be billed for inappropriate unbundled charges, for example, for equipment or products used during a medical procedure in an operating room when the equipment is normally included as part of the operating room facility fee and there is not normally an extra charge for the equipment used to perform that particular medical procedure. In many circumstances the medical service providers acknowledge that they are engaging in unreasonable billing tactics, but will not negotiate for lower medical service charges with a TPA who administers an employer sponsored medical benefit plan. In some circumstances, the medical service provider, who is relying on the PPO contract language, will threaten to charge the patient/employee for any unpaid medical charges by the medical benefit plan. Such unpaid charges, that are in excess of normal PPO contract acceptable charges, can be in the tens of thousands of dollars. Such an amount is more than what an employee is expecting to be charged or is prepared to be charged as part of their normal deductible, co-payment and/or self-pay obligations. One can imagine the amount of stress created when a patient receives a $40,000 hospital bill because the PPO network medical benefit plan, which their self insured employer is part of, believes that the charges are excessive and did not pay and because the medical service provider will not participate in a good faith resolution of the problem with the TPA.
In a nutshell and with respect to a self insured employer, there are generally two contracts of note in a PPO network contract. A first contract is between the medical service provider and the PPO medical network organization. The PPO medical network organization executes a second contract between the PPO medical network organization and a TPA or the self-insured plan that allows the TPA and/or the self insured medical benefit plan of an employer to have access to the PPO medical network and pay a discounted rated for the medical services provided. The PPO organization is in between the medical service providers and the TPAs and/or plan. The PPO generally does not screen or review the medical bills sent by the medical service providers to a TPA and/or plan. When there is a problem or dispute between the TPA/plan and a medical service provider, the PPO tends to remain neutral due to its conflict of interest with respect to both parties. In many circumstances, the PPO tends to be adverse to the TPA, because the PPO does not want to lose the medical service provider from its PPO network of medical service providers.
Therefore, what is needed is a medical benefit plan for self insured employers to provide their employees that allows the medical benefit plan to pay a reasonable value for medical services and products provided under the plan, and also protects the employees from paying additional fees to medical service providers who want to collect more than a reasonable amount for their services. Self insured employers may eventually have to cease using PPO medical service networks to control medical costs because the PPO medical service networks are no longer advantageous as a means for reducing or controlling medical costs incurred by the self insured employer's medical benefit plan. There needs to be a new medical benefit plan designed for self insured employers that could provide some of the benefits that a PPO medical network plan initially provided, such as for example, avoiding billing the patient for a balance that was not paid by the medical benefit plan or the TPA. Also it would be advantageous to have the self insured employer cover 100% of the benefits payable under the new medical benefit plan so that the employee is covered by ERISA. An additional high-value advantage to such a plan to medical service providers is that they are paid in full promptly by the plan and avoid having to collect from individual patients. The medical benefit plan should define how benefits are payable through a definition of reasonable value that takes into account a mathematical, statistical or comparative calculation of value based on public and privately provided data points. Furthermore what is needed after a reasonable value is calculated and determined as appropriate payment to the medical service provider, is for the employer, plan and/or TPA to be able to protect the employee from collection activity or law suits originated by a medical service provider for a difference between 100% of the medical service provider's billed charges and the amount that is determined by the new medical benefit plan as a reasonable value for the medical services or products rendered.